Industrial Production Slides In April - May 15, 2014

As we came into this week, it seemed as though all of the economic stars were aligned in perfect order. Specifically, almost all of the key sectors were sporting solid gains in their most recent surveys. Then, on Tuesday, we received word that retail sales, which had surged in March, gained just a token 0.1% in April. Now, within the past hour, comes word that industrial production, which had been forecast to have edged down by a token 0.2% last month, instead tumbled by 0.6%, the biggest drop in more than one and a half years.

As noted, this sharpest drop in more than a year and a half now would seem to slightly temper hopes for a big jump in second-quarter GDP growth, following the scant 0.1% increase recently estimated for the weather-impacted opening period. Still, in the absence of further news, our sense is that GDP growth could yet approach 3% in the current stanza, as most metrics remain quite favorable.

All told, production at the nation's mines, factories, and utilities fell 0.6% in April, which was the largest decline since August of 2012. At the same time, U.S. industry operated at 78.6%, which was down from 79.3% in March. Expectations here had been for more a modest decrease to 79.0%.

Meanwhile, the decline in industrial output was the first since January, when such production had fallen by 0.2%. In between, this gauge of industrial activity had gained 1.1% in February and 0.9% in March. Initially, the March increase had been estimated at 0.7%. Breaking the report down further, we see that manufacturing output, by far the largest of the three categories measured on the industrial front, fell by 0.4% last month. The other two components, mining and utilities usage, rose by 1.4% and plunged by 5.3%, respectively.

As to factory utilization, as noted this gauge of capacity use also fell last month, with the largest category, manufacturing, easing from 76.9% to 76.4%. As to the mining component, it increased from 88.9% to 89.7%, while capacity use at the nation's utilities fell more notably than it did in manufacturing, going from 84.7% in March to 80.1% last month.

All told, then, this was a disappointing report, and while it does not materially change things, it does suggest that GDP growth, which we had thought might reach 3.0% this quarter, could fall just shy of that mark, coming in at perhaps 2.8%, or so. However, that would still be a notable improvement from the 0.1% gain tallied in the initial three months of this year.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.